The Financial Accounting Standards Board is a private sector rule making body. Congressional inquiries have questioned whether the setting of accountin standards should remain in the private sector. Congressional critics have charged that the FASB has been captured by special interests and recommended that a governmental agency assume responsibility for standard setting. Specifically, critics charge that large corporations capture the Big Eight accounting firms who, in turn, have captured the FASB. Previous capture studies have concluded that the standard setting process is pluralistic and that the FASB has not been captured. The studies have focused on the influence of the Big Eight to determine if the FASB has been captured. They assume if standards do not reflect the expressed preferences of the Big Eight, then Congressional criticisms are invalid. The studies also assume a unidirectional influence between participants in the process and have ignored the intensity of preferences of the respondents.The purpose of this study is to provide a theoretical framework to specify selection of standards that would be expected to be subject to capture. This framework also recognizes the duo-directional nature of influence. The allegations of capture were tested using the standards selected in accordance with the theoretical framework. …

This dissertation is a descriptive, exploratory examination of professional commitment, organizational commitment, and conflict between those commitments in the internal audit profession. That conflict has been suggested in prior studies as the source of dysfunctional outcomes such as increased role stress, high turnover, decreased job satisfaction, and the exercise of improper judgment leading to audit failures. The descriptive aspect of this study deals with the development of a more comprehensive structural model of the factors and relationships involved in commitment and conflict than has been developed by previous research dealing with accountants. The exploratory aspect deals with the testing and refinement of the developed model utilizing the internal audit profession as the field of examination. The model developed in this study is derived from the synthesis of factors suggested by role theory, the concept of side bets, the cosmopolitan-local construct, and the concept of commitment as a process. This research utilizes a questionnaire administered to 205 practicing internal auditors in order to test 30 hypothesized relationships. Path analysis is used to determine the significant direct relationships between variables with a process of theory trimming being conducted in order to produce more parsimonious structural models. Indirect relationships between significant variables are …

This study examined the impact of the ceiling test write-off on the stock prices of affected full cost (FC) oil and gas firms.

This study examined whether three reserve-based quantity replacement measures and three reserve-based value replacement measures have incremental information content beyond that of historical earnings and its cash and accrual components. This study also examined whether the cash and accrual components of earnings have incremental information content beyond that of earnings.

This study uses concurrent verbal protocol analysis to examine the decision processes of lenders as they evaluate the financial information of a loan applicant. Of specific interest is the lenders' use of Statement of Financial Accounting Standards Board No. 95 (FAS 95), Statement of Cash Flows, in that decision process.

The purpose of this dissertation is to develop a theory that helps explain the conditions under which firms select certain project evaluation techniques. This study uses contingency theory to analyze the impact of environmental uncertainty on the choice of project evaluation techniques. In addition to a direct measure of uncertainty, several dimensions of uncertainty are included in this study. These dimensions of uncertainty include control structure, method of financing, foreign assets, method of growth, and product domination. This study also analyzes the use of project evaluation, management science and risk management techniques in US firms over time and in UK firms over time in order to compare to prior research. A comparison of firms in the two countries are also provided. The primary method of data collection was a survey instrument. Data were also collected from annual reports and various other public sources. The variables that appear significant in the choice of project evaluation technique in US firms are environmental uncertainty, control structure, method of financing, foreign assets, and product domination. The variable that appear significant in the choice of project evaluation technique in UK firms is method of financing. US firms favor discounted cash flow techniques although this study …

This study extends a research stream calling for further research regarding pricing and accounting feedback. Marketing executives rely heavily on accounting information for pricing decisions, yet criticize accounting feedback usefulness. To address this criticism, this research integrates the cognitive psychology and accounting literature addressing feedback effectiveness with pricing research in the marketing discipline. The research extends the scope of previous accounting feedback studies by using a control group and comparing two proxies of subject task knowledge; years of pricing experience and a measure of the cognitive structure of pricing knowledge. In addition, this research manipulates task complexity by using two different accounting systems. These systems vary in the number of cost pools used in allocating overhead, resulting in differentially projected cost and profit information. A total of 60 subjects participated in a computer laboratory experiment. These subjects were non-accountants with varying amounts of pricing knowledge. Subjects were randomly assigned to six experimental groups which varied by feedback type (no accounting feedback, outcome feedback only, or a combination of outcome and task properties feedback) and task complexity (high or low number of overhead cost pools). The subjects attempted to (1) maximize profits for a product during 15 rounds of pricing decisions, …

This study examines the influences of culture on the implementation of a U.S.-based Activity-Based Costing (ABC) in three Thai organizations.

This research investigates the information content of the translation information resulting from exchange rate fluctuations. Two hypotheses are examined. The dollar movement hypotheses investigate whether there is a positive relationship between security valuation and the translation information and whether the market assigns different weights to translation gains and losses in both the depreciating and appreciating exchange rate environments. The geographic concentration hypothesis tests whether the market's response to the translation information is geographically sensitive. Prior research on SFAS No. 8 and SFAS No. 52 has concentrated on the price and trading volume responses to the deliberations and issuance of these two accounting statements. Soo and Soo (1994) examine the long-term effect of the disclosure requirement under SFAS No. 52 on MNEs' security prices from 1981 to 1987. However, they fail to address two important issues pertinent to the MNE research--the effects of exchange rate changes and the geographic concentration. The dollar movement hypotheses provide strong evidence that under both the appreciating and depreciating exchange rate environments, a positive relationship exists between security returns and the translation information when MNEs disclose translation losses in stockholders' equity. The findings also provide evidence for a positive or at least non-negative relationship between security …

Organizations invest in team-based systems in order to generate innovative practices that will give them a competitive edge. High-performing teams require training and other support systems to gain the skills they need as well as to create and maintain an environment conducive to their success. The challenge for managers is to make resource allocation decisions among investment alternatives to maximize team effectiveness and still ensure a financial return for company investors. This study has three objectives. The first objective is to investigate whether there is a positive relationship among organizational environment, team potency (the team's collective belief it will succeed) and team performance. Results indicate that the presence of four organizational support systems influences team potency and performance. These support systems are the Design and Measurement, Rewards, Training and Communications Systems. In addition, results indicate that team potency is a mediating variable between the Design and Measurement and Communications Systems and team performance. These results suggest that companies are able to influence team performance by investing in environmental support systems. The second objective is to examine whether team members and managers view the organizational environment differently. Results indicate that managers view the Training and Communications Systems as more important, while …

This study examines the impact of Statements of Financial Accounting Standards No. 141 and No. 142 (hereafter SFAS 141, 142) on the characteristics of financial analysts' earnings forecasts after mergers. Specifically, I predict lower forecast errors for firms that experienced mergers after the enactment of SFAS 141, 142 than for firms that went through business combinations before those accounting changes. Study results present strong evidence that earnings forecast errors for companies involved in merging and acquisition activity decreased after the adoption of SFAS 141, 142. Test results also suggest that lower earnings forecast errors are attributable to factors specific to merging companies such as SFAS 141, 142 but not common to merging and non-merging companies. In addition, evidence implies that information in corporate annual reports of merging companies plays the critical role in this decrease of earnings forecast error. Summarily, I report that SFAS 141, 142 were effective in achieving greater transparency of financial reporting after mergers. In my complementary analysis, I also document the structure of corporate analysts' coverage in "leaders/followers" terms and conduct tests for differences in this structure: (1) across post-SFAS 141,142/pre-SFAS 141, 142 environments, and (2) between merging and non-merging firms. Although I do not identify …

In recent years, the accounting profession has faced increased scrutiny because of scandals involving management fraud (e.g., Enron, WorldCom). In response, Statement on Auditing Standards (SAS) #99 has expanded auditors' responsibility for detecting fraud, requiring auditors to gather significantly more information in their assessment of fraud. In addition, the Public Company Accounting Oversight Board (PCAOB) will focus on fraud detection through their inspections of registered accounting firms. In light of the increased emphasis on auditors' responsibility for detecting fraud, public accounting firms face the challenge of improving their fraud detection process, including their assessment of management fraud risk. Decision aids are one way for auditors to improve their assessment of management fraud risk. In fact, several studies from the decision aid literature suggest that aids are useful tools for a variety of tasks, including fraud risk assessment. At the same time, another stream of the decision aid reliance literature, which looks at people's willingness to rely on decision aids, suggests that individuals tend to be reluctant to accept the output given by an aid. Thus, the primary focus of this paper is on uncovering factors that would encourage one to voluntarily use and rely upon a decision aid. Toward that …

Auditors regularly make judgments regarding whether a client’s chosen accounting policy is appropriate and in accordance with generally accepted accounting Principles (GAAP). However, to form this judgment, auditors must either possess adequate topic-specific knowledge or must gain such knowledge through information search. This search is subject to numerous biases, including a bias toward confirmation of a client’s preference. It is important to further our understanding of bias in auditors’ information search to identify its causes and effects. Furthering our understanding is necessary to provide a basis for recommending and evaluating a potential debiaser, such as accountability. the Public Company Accounting Oversight Board (PCAOB) annually inspects the audit files of selected engagements, which introduces a new form of accountability within the auditing profession. This new form of accountability has come at great cost, however, there is little empirical evidence regarding its effects on auditors’ processes. As such, it is important to understand whether the presence of accountability from the PCAOB is effective in modifying auditors’ search behaviors to diminish confirmation bias. Using an online experiment, I manipulate client preference (unknown vs. known) and PCAOB accountability pressure (low vs. high) and measure search type (information –focus or decision-focus), search depth (shallow or …

Management control systems perform a vital role in facilitating the accomplishment of organizational objectives. To effectively align the objectives of employees with those of the organization, firms balance multiple control mechanisms to encourage organizationally desired behaviors and discourage undesired behaviors. The purpose of my dissertation was two-fold. First, I assessed how changes in monitoring frequency influenced employee behaviors and the overall function of the management control system. Second, I investigated the effects of stretch goals on behavior to determine whether stretch goals can lead to harmful behaviors and whether continuous monitoring can mitigate these behaviors. Results suggest that individuals exert more effort when assigned a stretch or difficult goal compared to an easy goal. My study also finds that stretch goals can be harmful because of their effect on risk taking, goal commitment, and job insecurity. Finally, results indicate that accountability mediates the monitoring frequency-risk taking relationship such that continuous monitoring increases accountability and accountability decreases risk taking. However, the ability of monitoring frequency to decrease risk taking may depend on numerous factors. Results from this study allow practitioners to understand the potential benefits and drawbacks of implementing continuous monitoring systems and the combined effects of using these systems in …

In this study, I investigate the effect of auditor-provided tax services (ATS) on firms’ levels of book-tax differences and investors’ mispricing of book-tax differences. The joint provision of audit and tax services has been a controversial issue among regulators and academic researchers. Evidence on whether ATS improve or impair the overall accounting quality is inconclusive as a result of the specific testing circumstances involved in different studies. Book-tax differences capture managers’ earnings management and/or tax avoidance intended to maximize reported financial income and to minimize tax expense. Therefore, my first research question investigates whether ATS improve or impair audit quality by examining the relation between ATS and firms’ levels of book-tax differences. My results show that ATS are negatively related to book-tax differences, suggesting that ATS improve the overall audit quality and reduce aggressive financial and/or tax reporting. My second research question examines whether the improved earnings quality for firms acquiring ATS leads to reduced mispricing of book-tax differences among investors. Recent studies document that despite the rich information about firms’ future earnings contained in book-tax differences, investors process such information inefficiently, leading to systematic pricing errors among firms with large book-tax differences. My empirical evidence indicates that ATS mitigate …

The purpose of this dissertation is to investigate the effect of U.S. firms’ geographic location, whether urban or rural, on their corporate disclosure and governance practices. An “urban” firm is one that is headquartered in a large metropolitan area; whereas, a “rural” firm is one that is headquartered some distance from any metropolitan area. Specifically, the study examines whether there are different stock market reactions to urban and rural firms around key event dates relative to the enactment of the Sarbanes-Oxley Act (SOX) on July 30, 2002. Also, the readability and linguistic style in the Management Discussion and Analysis (MD&A) section of public company’s annual reports (Form 10-K) to the Securities and Exchange Commission (SEC) are investigated to determine whether urban and rural firms communicate information differently to investors.

Client inquiry is a fundamental procedure for gathering audit evidence. Since inquiries are not audio- or video-recorded in practice, auditor memory is vital to the accuracy of evidence gathered in this manner. Due to the potential for error during memory encoding and retrieval, the effect of memory on judgment, and the cognitive complexity of conducting a face-to-face inquiry, examining factors affecting auditor memory of client inquiries is important. In this dissertation, I examine two factors likely to affect auditor memory of a client inquiry. First, encoding style is a low-level cognitive function representing how much stimuli an individual perceives before applying prior knowledge (schemata) to assist with encoding to long-term memory, affecting information noticed and remembered. Differences in auditors’ encoding style may explain variance in memory accuracy of evidence gathered from a client inquiry. Second, audit professionals often make hand-written or typed notes during client inquiries, and subsequently review the notes, which may affect memory. To address these issues, I first gather interview evidence from six professional auditors to determine how practicing auditors plan, prepare for, conduct, and document evidence from client inquiries. I then develop and execute a video-based experiment with 33 senior auditor participants, 23 masters-level accounting students, …

Tax evasion is a serious issue that influences governmental revenues, IRS enforcement strategies, and tax policy decisions. While audits are the most effective method of enforcing compliance, they are expensive to conduct and the IRS is only able to audit a fraction of the returns filed each year. This suggests that audits alone are not sufficient to curb the billions of dollars of tax evaded by taxpayers each year and that a better understanding of factors influencing compliance decisions is needed to enable policymakers to craft tax policies that maximize voluntary compliance. Prior research tends to model compliance as economic, environmental, or personal decisions; however, this study models it as a multifaceted decision where these three perspective individually and interactively influence compliance. It is the first to decompose perceived detection risk into two dimensions (selection risk and enforcement risk) and investigates how these two dimensions of risk, decision domains (refund or tax due positions), and three personal factors (mental accounting, narcissism, and proactivity) influence taxpayers’ compliance decisions. I conducted a 2x2 fully crossed experiment involving 331 self-employed taxpayers. These taxpayers have opportunities to evade that employed taxpayers do not. For example, they can earn cash income that is not reported …

This study analyzes corporate governance practices of foreign (non-U.S.) issuers listed on the New York Stock Exchange (NYSE) and Nasdaq. Specifically, I examine the extent to which these foreign issuers voluntarily comply with U.S. stock exchange corporate governance requirements applicable to domestic issuers. My sample consists of 201 foreign companies primarily domiciled in Brazil, China, Israel, and the United Kingdom. I find that 151 (75 per cent) of the sample firms do not elect to comply with any of the U.S. corporate governance requirements. Logistic regression analysis generally supports the hypotheses that conformance with U.S. GAAP and percentage of managerial ownership are positively associated, and that percentage ownership by major shareholders is negatively associated with foreign firms electing to comply with U.S. corporate governance rules. This evidence is relevant for regulators and investors.

Because of the non-recurring and transitory nature of discontinued operations, accounting standards require that the results of discontinued operations be separately reported on the income statement. Prior accounting literature supports the view that discontinued operations are non-recurring or transitory in nature, and also suggests that income classified as transitory has minimal relevance in firm valuation. Finance and management literature, however, suggest that firms discontinue operations to strategically utilize their scarce resources. Assuming that discontinued operations are a result of managerial motives to strategically concentrate resources into remaining continued operations, this dissertation examines the informativeness of discontinued operations. In doing so, this dissertation empirically tests the financial performance, investment efficiency, valuation, and analyst forecast accuracy effects of discontinued operations. In 2001, Financial Accounting Standards Board's (FASB) Statement of Financial Accounting Standards (SFAS) 144 (hereafter SFAS 144) replaced Accounting Principles Board's Opinion 30 (hereafter APB 30) and broadened the scope of divestiture transactions to be presented in discontinued operations. Some stakeholders of financial statements argued that discontinued operations were less decision-useful in the SFAS 144 era because too many transactions that do not represent a strategic shift in operations were separately stated as discontinued operations on the income statement. With the possibility …

To supplement earnings reported under generally accepted accounting principles (GAAP), public companies often voluntarily report alternative measures of earnings called non-GAAP earnings (NGE). These companies assert that NGE exclude the effect of non-recurring transactions, thereby helping users of financial information to better assess the company's past performance and prospects. Because NGE measures are not well defined, managers can exploit the inherent discretion in calculating NGE to mislead users. Prior studies provide arguments and evidence on the informative as well as opportunistic use of NGE. However, the studies have examined the characteristics and informativeness of NGE with a focus on U.S. companies. The results of studies that consider the NGE disclosure by U.S. companies may not be generalizable to the cross-listed companies because foreign financial reporting standards are different from the U.S. GAAP. Further, prior studies report a difference in earnings quality of U.S. firms and cross-listed firms, which can also result in a difference in the informativeness of their NGE. To fill this gap in literature, I examine whether the informativeness of NGE of cross-listed companies is different from that of U.S. companies. This study contributes to the debate on the informativeness of NGE. It provides evidence that in general, …

The purpose of my dissertation is to examine whether competition among audit partners affects audit quality. While prior research on audit market competition focuses on audit firm-level or office-level analyses, I argue that audit partners, as the primary decision makers in providing audit services, are likely to engage in competitive actions in the audit market. Further, I use spatial distance among audit partners to measure partner-level competition. I conjecture that spatial distance could better reflect the dynamics of audit market competition than the Herfindahl index, the traditional proxy for competition used in most extant studies. Drawing on the spatial economics theory and the social comparison theory, I hypothesize a negative association between competition measured by spatial distance and the quality level delivered by the incumbent audit partner. Using newly available data of U.S. audit partners, this study provides evidence that audit quality is higher (lower) when the spatial distance between the incumbent partner and the closest competing partner is larger (smaller). In addition, the results reveal that the effects of competition measured by spatial distance on audit quality is mainly a partner-level phenomenon rather than an office-level one. Overall, this study highlights the importance of studying competitive dynamics among audit …

This dissertation investigates the interrelationships between a client's non-GAAP earnings disclosures, financial health (profit and loss status), and the external auditor's assessment of the client's going concern status. This dissertation comprises two essays. Essay 1 examines the informativeness and the quality of non-GAAP earnings disclosures in profit and loss firms separately. Using a large sample of non-GAAP earnings voluntarily disclosed by managers, I find that the informativeness and the quality of non-GAAP earnings vary in firms cross-classified by GAAP loss status and non-GAAP loss status. I also find that loss firms have higher quality non-GAAP exclusions relative to profit firms, although the expenses excluded by both profit and loss firms are associated with firms' future performance. Further, I posit and find that profit firms which voluntarily disclose non-GAAP losses have high-quality exclusions, while other non-GAAP reporting profit firms have low-quality exclusions. Having found that non-GAAP earnings in loss firms is opportunistic to some extent, I next study, in Essay 2, whether auditors understand the implications of low-quality non-GAAP reporting in these firms. Specifically, I examine 1) whether non-GAAP earnings disclosures are associated with the propensity of the auditor's going concern issuance to loss firms, and 2) whether non-GAAP earnings disclosures …

This study examines the determinant and consequences of having a chief operating officer (COO). Specifically, we investigate chief executive officer (CEO) related factors that affect the choice to employ a COO and look into the impact of having a COO on firm operational efficiency using a data envelopment analysis (DEA)-based measure. Although prior literature has extensively investigated the role of CEOs and chief finance officers (CFOs) on firm outcomes, few studies focus on the impact of COOs. Thus, this study explores characteristics associated with the likelihood that a firm will have a COO. This research also sheds light on the effect of COOs on firm operational efficiency because the core duties of COOs include optimizing operational performance and improving cost efficiency. Our results imply that CEO busyness, CEO ability, CEO demographic characteristics, and CEO network size have a significant impact on the decision to employ a COO. We also find that firms that have a COO have a lower level of operational efficiency than firms that do not. This result implies that the cost of having a COO outweighs the benefit of having one. The effects last for three years on average. Further, we find that firms with a COO …